Benchmark rates likely to remain 'steady' this fiscal: DBS

Govt has displayed a proactive approach in calming unseasonal and unwarranted increase in prices of vegetables and fruits

The Reserve Bank of India is expected to be in pause mode in its policy review meet next month, a DBS research report said today.

The report also indicated that the benchmark rates are likely to remain 'steady' for the rest of this fiscal year.

According to the global financial services major, the government has displayed a proactive approach in calming unseasonal and unwarranted increase in prices of vegetables and fruits.

Besides, there have also been indications that imports of selected vegetables could be stepped up to calm unexpected jump in domestic prices or unmet demand.

Meanwhile, there has been a pick up in monsoon rains. According to the Indian Meteorological Department, rainfall deficiency narrowed to 27% between early-June until 22 July, down from around 43% at the start of the month.

Inflation rate is also likely to get some support from favourable base effects between July and December 2014, which in turn would keep headline CPI readings well below the RBI's target at 8%.

However, the CPI reading is expected to increase again in the March quarter due to adverse base effect.

"The RBI is cognizant of these swings and is unlikely to be pushed into action at the August rate review," a DBS research report said, adding that "we expect the Repo to be held unchanged".

The report further noted that "the benchmark rates are likely to remain steady for the rest of this fiscal year".

Retail inflation in June touched its lowest mark at 7.31% since January 2012 and the wholesale price-based index slid to four-month low of 5.43% mainly because of easing vegetables prices.

In the June 3, policy review, RBI left key rates unchanged and unlocked about Rs 40,000 crore of funds by reducing the amount of deposits banks are required to park in government securities.

This was the second time in a row that interest rates were left unchanged amid demands for moderation to spur growth.

RBI's credit policy review is scheduled on August 5.